UPDATED: Microsoft today confirmed speculation that it
intends to buy voice recognition application vendor Tellme Networks. Jeff
Raikes, president of Microsoft's business division, refused to disclose the
terms of the agreement, but said he expects the deal to close during the
second quarter of 2007.

Privately held Tellme provides voice-recognition applications and service
platforms used for automating responses to customer calls.

Raikes said the acquisition would give Microsoft added capabilities in such areas as unified communications (UC), mobile search and Microsoft's variant on
software-as-a-service (SaaS), which it calls software plus service (S+S).

"The impact of this acquisition will be felt broadly across the company and
not just the business division," Raikes said during a conference call
with reporters.

But while Raikes touched on how voice recognition will accelerate the
company's progress in various markets by enhancing its current offerings, he
would not say whether Microsoft would roll out any new applications as a
result of the acquisition.

He promised that Microsoft would provide "tangible ideas" after the
acquisition closes.

Raikes did say that Microsoft intends to use voice as a significant computer
input device going forward, with applications ranging from its Office
productivity suite to consumer-oriented search on mobile devices.

Tellme "already does more mobile search support than Google and Yahoo
combined," said Raikes.

He also noted that Microsoft intends to help integrated services vendors
(ISVs), ISPs and other partners in its ecosystem use hosted versions of
Tellme's applications to improve their ability to serve their customers.

"This marks a very important step forward in our strategy of providing
software plus service," he said. "Their investments will enhance our own
technologies."

To some, the acquisition may seem redundant. After all, Microsoft has
already put a lot of effort into its UC product, which combines e-mail,
instant messaging and VoIP into a single client that can
be used both on the desktop and on mobile devices and accessed using voice
commands.

But Raikes argued that the acquisition will give Microsoft access to
enterprise-class interactive voice response technology in which it has not
made significant strides to date. He added that Microsoft will benefit from
the relationships Tellme has established with ISPs and wireless carriers.

Raikes stated that Microsoft is committed to the voice XML standard, which
he qualified as "very important." But he added that Microsoft will work with
the W3C standards body to "advance voice XML," by "bringing some SALT ideas
to the table."

SALT, or Speech Application Language Tags, is a standard Microsoft has
developed with Intel and others. Microsoft has
often been accused of developing its own versions of open standards for
competitive advantage.

Tellme CEO Mike McCue said that his company has made significant advances in
voice technology, which has remained relatively unchanged for decades. This
technology combined with Microsoft's platform "represents dial tone 2.0," he
said.

But Microsoft faces competition from other networking and platform
providers such as Cisco and IBM , which
launched
its own UC platform earlier this year.

Janice Kapner, director of marketing for Microsoft's unified communications
group, noted that competitors are delivering parts of the puzzle. She told
internetnews.com that the acquisition "helps accelerate the impact"
of the technology.

"Competition is a good thing," she said.

Yankee Group analyst Zeus Kerravala said that in contrast to its
competitors, Microsoft is treating voice like a feature rather than a
stand-alone product, giving it a leg up in the marketplace.

"In the same way
that the browser was a product for Netscape and a feature for Microsoft, IBM
is treating voice like a product. Microsoft is saying it's a feature and
embedding it within its unified communications platform," he told
internetnews.com.

He added that Tellme's voice search capabilities will help Microsoft
customers comply with regulations regarding electronic document retrieval
and search.